Wesfarmers Refuted Criticism Report On Coles

  • Nov 15, 2018 AEDT
  • Team Kalkine
Wesfarmers Refuted Criticism Report On Coles

Wesfarmers refuted media reports that claimed Coles would not be able to pay franked dividends for up to two years after its separation from WES.

Chief executive Officer Rob Scott slams the criticism by saying suggestion the retailer might not be able to pay franked dividend is “factually wrong”. Mr. Scott reaffirmed the dividend guidance which anticipates shareholders would receive dividends from Coles and Wesfarmers that would broadly be equal to dividends that Wesfarmers would have otherwise declared if demerger would not have happened.

These arguments relate to recent media report published by leading Australian media company citing a senior researcher in demerger, Robyn Rodier.

Ms. Rodier suggested that Coles, as a separate listed entity, might not be able to pay franked dividend for up to two years as Wesfarmers retains all the franking credits worth $978 million on Coles demerger.

Chairman Michael Chaney rebutted Ms. Rodier’s analysis, stating the transfer of franking credits to Coles was not possible. He added Coles will be a taxpayer and will accrue franking credit by paying significant amount of tax.

Ms. Rodier, accredited for studying Australian demergers during her PHD research, said in the past 18 years she has never come across any top 100 company that has retained as significant as 15% stakes in the demerged. She further questioned the motives of Wesfarmers for retaining 15% stakes in demerged Coles and said:

"It's like being half pregnant – you're either demerging Coles or you're not."

Defending Wesfarmers decision to retain substantial stakes in Coles, Mr. Scott stated the company believes 15% stakes presents Wesfarmers support and confidence in Coles business, essential for retail investors. He added the retention decision was also backed by the Wesfarmer’s intention to secure a seat on the Board as it has opened opportunities to collaborate on data and digital areas through Flybys.

Taking the analysis to goodwill derecognition, Ms. Rodier said that $13 billion goodwill recognized at the time of acquiring Coles in 2007 would ‘disappear’ on Coles demerger that would possibly give a ‘free kick’ to executive incentives.

Mr. Scott demolished the statement saying the company will adjust for the same, so no executives gets a ‘free kick’.

Coles separation from Wesfarmers was strongly recommended by the Board on unanimous basis  and has received approval of independent expert and over 98% proxy votes in favor. However, independent expert Grant Samuel has also questioned the reason for retaining 15% stakes in demerged Coles. Supermarket giant Coles is slated to commence trading as an independent listed company on ASX from 21 November 2018.

Today, 15 November 2018, the stock of Wesfarmers Limited (ASX: WES) fell 1.669% to close at $45.370. Whereas, its PE was 43.590 x with market capitalization of $52.32 billion. However, in the past one year, the stock has seen a performance change of +6.81%.


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